Since 2002, the Human Rights Campaign (HRC) Foundation has published its annual Corporate Equality Index (CEI) report, rating U.S. employers on policies aimed at protecting and supporting LGBTQ employees. According to the 2019 report, “Employers earning top ratings took concrete steps to ensure greater equity for LGBTQ workers and their families in the form of comprehensive policies, benefits and practices.” The CEI universe includes Fortune magazine’s 500 largest publicly traded businesses, American Lawyer magazine’s top 200 revenue-grossing law firms (AmLaw 200), and hundreds of publicly and privately held mid- to large-sized businesses. This year, over 1100 companies received ratings, based on data submitted to the HRC Foundation as well as independent research on non-reporting companies.
In the latest report, 572 businesses earned a 100 percent rating. Of the Fortune 500-ranked businesses included in the report, 193 achieved a perfect score. What correlation is there, if any, with company performance? There is general acceptance that policies promoting diversity and inclusion in the workplace have positive benefits for companies, including greater job satisfaction, higher employee productivity, and better employee retention. In addition, there is an increasing volume of research showing that these policies positively impact company costs, stock prices, and most importantly, profits.
To better quantify the impact of LGBTQ-supportive corporate policies specifically, we took the list of 441 publicly traded Fortune 500 companies with a CEI rating and ran the numbers. We looked at various characteristics of these companies, including industry, headquarters location, size, and stock price performance. Our preliminary analysis shows that over the past five years, public Fortune 500 companies with pro-LGBTQ policies have outperformed their peers. However, using this criterion as an investment theme has not yet proven to be a highly marketable strategy.
Breaking Down the Fortune 500 Companies by CEI Score
Of the 441 publicly traded Fortune 500 companies with a CEI rating, 183 received a perfect score of 100 while 266 scored 80 or higher. The companies with high ratings tend to be larger; while the full list of 441 companies have median annual sales of $13.5 billion and 27,621 employees, the companies with perfect scores have median annual revenue of $16.3 billion and 38,680 employees. Companies with scores of 80 or higher had median annual sales of $15.9 billion and 39,550 employees.
Only 41% of companies with less than $10 billion in revenue scored 80 or higher on the CEI, whereas 64% of companies with greater than $10 billion in revenue scored above 80. The biggest company on the list, Walmart, has annual sales of $514 billion and 2.2 million employees and scored a 100 on the CEI. Of the 10 smallest companies on our list, only two had CEI ratings of 100: Symantec Corp. ($4.7 billion in revenue and 11,900 employees) and Wyndham Destinations ($3.9 billion in revenue and 24,500 employees).
The geographic distribution of companies with the best policies for LGBTQ employees also shows some interesting trends. Our list of 441 companies has company headquarters across 37 states, while the subset of companies with perfect CEI scores spans just 30. In fact, more than half (52.5%) of the companies with a CEI score of 100 are headquartered in just five states: California (37 companies), New York (29), Illinois (12), New Jersey (9), and Virginia (9). Apart from Virginia, these states all have laws in place prohibiting employment discrimination based on sexual orientation and gender identity; however, Virginia’s proximity to Washington, DC, which does have these anti-discrimination laws in place, could help explain the Virginia-based companies’ strong performance.
Texas fares especially poorly for number of companies with high CEI scores; while 43 companies out of our list of 441 are headquartered in Texas, just seven of them received a perfect CEI score; only 15 scored 80 or higher. Texas is one of 17 states that do not prohibit employment discrimination based on sexual orientation or gender identity.
Interestingly, the location of company headquarters is also tied directly to the industries that have the highest CEI ratings. While Finance and Technology (combining the FactSet sectors Electronic Technology, Health Technology, and Technology Services) companies make up less than one third (31%) of our total list of 441 Fortune 500 companies, these industries account for 45.4% of the subset of companies with perfect CEI scores. Where are these companies located? The top states where these Finance and Technology firms are headquartered is identical to our list of overall top states (CA, NY, IL, NJ, and VA). While the list of New York firms is dominated by Finance companies, the California list contains a healthy mix of both Finance and Tech, featuring familiar names such as Apple, Google, and Facebook, as well as Charles Schwab, Visa, and Wells Fargo.
The identification of the top industries for LGBTQ employees is in line with the Financial Times’ 2019 OUTstanding list, which celebrates successful global LGBT+ executives and allies who are working to create supportive workplaces for others. The FT’s list is dominated by executives in financial services, followed by professional services, the public sector, law, and technology.
Which industries have the lowest representation in our group of companies receiving a CEI rating of 100? Industrial and mining sectors have the fewest number of companies with perfect CEI scores. The bottom five industries on the list are Energy Minerals, Industrial Services, Non-Energy Minerals, Process Industries, and Producer Manufacturing. While these sectors combined include 91 companies on our full list of 441 Fortune 500 companies, just 14 of them have perfect CEI scores.
Now that we have broken down the companies with the highest CEI scores by size, location, and sector, let’s examine the relative performance of these companies. Are these companies a good investment?
To see how our list of companies with high CEI scores perform, we created three composite portfolios, each weighted by current market capitalization: the full list of 441 publicly traded Fortune 500 companies, companies with a perfect CEI score, and companies with a CEI score of 80 or higher. We calculated the one-, three-, and five-year total returns for these three portfolios, and compared them with two S&P indices.
Returns Comparison (as of 31-May-2019)
CEI 100 Score
CEI 80+ Score
Publicly Traded Fortune 500
S&P Composite 1500
As shown in the table above, our calculations show that companies with high CEI scores outperformed the overall market (returns calculated through 31-May-2019). While the Fortune 500 companies have a five-year total return of 35.9%, companies with a perfect CEI score saw a 59.7% return, while companies scoring 80 or higher had a total return of 48.0%. Our two CEI indices also outperformed the S&P 500 and S&P 1500 indices. This outperformance appears to be driven by the Technology sector, which makes up nearly one quarter of our perfect CEI-rated companies and has significantly outperformed the overall market over the last five years.
Since our list of companies with high CEI scores is skewed toward larger companies, we attempted to contextualize their performance vs. U.S. large cap ETFs. We used the median sales figures stated above as a proxy for the weighted average market cap of the securities that would be included in an index constructed from the Fortune 500 universe with the CEI score constraints outlined above (100, 80+).
These hypothetical indexes would have portfolios that include more constituents (venturing further into the mid-cap range) than Vanguard Mega Cap ETF (MGC), but fewer than SPY. We also included Vanguard Large Cap ETF (VV) and iShares' Russell 1000 ETF (IWB), because these funds include every security in the selection universe. On the other hand, the S&P 500 methodology requires positive earnings in the most recent quarter, and net positive earnings over the past 12 months, and therefore weeds out some struggling Fortune 500 firms.
Comparison with U.S. Large Cap ETFs (as of 31-May-2019)
Weighted Average Market Cap 31-May-2019 ($ bn)
Median Sales Mar 2019 ($ bn)
Vanguard Mega Cap ETF
CEI 100 Score
CEI 80+ Score
Publicly Traded Fortune 500
SPDR S&P 500 ETF Trust
Vanguard Large-Cap ETF
iShares Russell 1000
MGC, composed of even larger firms than those in the perfect CEI scores set, outperformed on a five-year basis. SPY's performance was weaker than MGC's, but stronger than the full set of publicly traded Fortune 500 firms. VV's and IWB's five-year returns were far stronger than SPY's. This analysis indicates that the strong performance of companies with high CEI scores could be attributed to the dominance of large companies on the list. The next step would be to extend this analysis to identify which factors explain the return variation for our high CEI-scoring companies.
Investing in ETFs
The easiest way for investors to invest in companies that have supportive LGBTQ policies, or that follow other investment philosophies in line with their own personal views and priorities, is through exchange traded funds (ETFs). In the past five years, there has been a surge in ETFs based on environmental, social, and governance (ESG) guidelines. FactSet data shows that there are 59 active U.S.-domiciled ESG equity ETFs. About half of these are based on adherence to a general set of ESG criteria, while the rest have a very specific focus. For example, there are ETFs that invest in companies with low carbon emissions, high representation of female leaders, and veteran-friendly employment practices.
The success of these ESG-focused ETFs has been mixed. The six biggest ETFs by assets under management (AUM) are all broad-ESG funds. Eight of the 10 smallest ETFs have highly focused investment criteria. Among these is the InsightShares LGBT Employment Equality ETF (PRID), which launched on January 10, 2018. This ETF invests in U.S. companies that have a CEI score of 85 or higher, as well as meeting minimum thresholds for liquidity and profitability as defined by UBS. The ETF currently has $2.6 million in AUM, down from $25.4 million at the start of the year, having lost 90% of its assets this year. Earlier this year, the ALPS Advisors Workplace Equality ETF (EQLT) stopped trading.
Performance is not necessarily the issue here. PRID has outperformed the broad market since its launch 6.38% to 5.21%. While this outperformance is not statistically significant (p-value of 0.64), the promise of returns that are at least as good as the overall market should be enticing to investors looking to put money into companies whose corporate priorities match their own. The issue here could be that these highly-focused ESG funds are just too expensive. The 10 smallest ETFs on our ESG list have an average expense ratio of 0.64%. This compares to 0.20% for the top 10 ETFs. FactSet’s Elisabeth Kashner has written extensively about the ETF fee wars and the difficulties of launching new funds. According to Kashner, “Not only are the major market segments well-covered, and the potential fee revenue compressed, but market acceptance of new ideas is disappearing.” That being said, we are currently seeing an uptick in the launch and market of new ESG funds, so there is potential growth in this area.
With the U.S. LGBT population estimated at 21.3 million (Source: LGBT Capital (2018)), companies are increasingly realizing that establishing policies that protect this subset of their employees makes good business sense. Our analysis shows that the companies who receive high marks in this area tend to be larger, are more likely to be based in states with strong LGBTQ anti-discrimination protections, and dominate in the finance and technology sectors. There is also evidence that these companies outperform the overall market in terms of stock performance. According to HRC President Chad Griffin, “Time and again, leading American businesses have shown that protecting their employees and customers from discrimination isn’t just the right thing to do – it’s also good for business.” While investing in these companies as a group remains somewhat challenging, investors can choose to put their money behind businesses that institutionalize their support for LGBTQ+ employees.
VP, Associate Director, Thought Leadership and Insights
Sara Potter is responsible for developing applications that facilitate the analysis of global markets at a macro level, highlighting FactSet’s vast benchmark and economic content sets. Since joining FactSet in 1999, Ms. Potter has also managed the economic database development team, where she was responsible for the integration of third-party economic content as well as the development of FactSet Economics data. Ms. Potter received a M.A. in International Economics and Finance from Brandeis University and holds a B.A. in Economics and French from Dartmouth College. She is a CFA charterholder.